Sunday, May 20, 2007

Who's Next In Line? Hopefully Many

Let's review - the time to work on a succession plan is now, not after the death or disability of a business owner. The key, though, is not just putting a plan on paper, but crafting a plan that will meet the practical challenges of arranging for an orderly and effective transfer of ownership and management.

In other words, make sure your buy-sell agreement will work.

To that end, Barry S. Cain, managing director for the Family Business Center at the accounting and consulting firm Blackman Kallick, has recently posted a fine article that focuses on the need for diversity in succession planning.
The key to the long-term success of your business lies in a word widely used in business today, although usually in a different context: diversity. Because the future is full of uncertainty, it’s extremely risky to pin all your hopes on one successor, even if a relative is waiting in the wings. The future of your business will be best assured if you have choices ... and good ones, at that.
Some of the key ideas covered in the article by Mr. Cain include:
  • The need to have options for the next generation of leaders for the business. Choosing only one successor is very risky. If that individual is not ready when the time comes, either due to changes over time in the needs of the business or because of changes in the professional or family life of the successor, then the succession plan for the business is in peril.
  • Mr. Cain also suggests that the next generation of leaders for the business need not come from within the family bloodline. This idea is obviously directly aimed at family businesses, but the idea of looking outside the organization can also be well-applied to most closely held companies.
One other important related topic that is not addressed in the article is the need to maintain appropriate financing arrangements for the buy-sell agreement, through sufficient life and disability insurance or otherwise. Don't let your succession plan fail because there are not sufficient assets to pay for the transfer of ownership to move the plan forward.

Special thanks to author Paul Brown and his New York Times small business tool kit for bringing the article by Mr. Cain to my attention.

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